Rise in Telecom tariffs: When can we expect it?

Reliance Jio has been dictating the tariffs in the Indian Wireless services market, ever since it launched it's services in middle of 2016. Reliance Jio first introduced trial services sometime in April 2016, but to avail the FREE services one had to purchase their LYF branded handset. Then later in August 2016, Jio started offering it's 4G sim cards for FREE usage for users of 4G handsets from select brands. And finally on 5th September 2016, it opened the gates for everyone to walk into a Jio store & get a Jio 4G sim, which came bundled with FREE usage till the end of December 2016, which was further extended to 31st March 2017.

At that point, i.e. end of March 2017, Reliance Jio had managed to add over 100 million users on it's 4G-only network. Airtel had over 300 million subscribers and Vodafone + Idea had over 400 million users on their respective networks. It's been little over 2 years since then. Reliance Jio's user base has shot up to over 300 million, that too all 4G-only subscribers. Airtel's user base has marginally shrunk to little under 300 million, which comprises of 95 million 4G users, 25 million 3G users and the rest nearly 160 million 2G users. Vodafone-Idea's user base has shrunk much more to about 320 million, comprising of 85 million 4G users, 25 million 3G users and 210 million 2G users.

Coming to tariffs, Reliance Jio launched some very aggressive tariffs in April 2017. They just removed the concept of counting talktime in terms of minutes or rupees or the concept of Roaming & STD calling and Data usage in terms of MBs or GBs per month. Everything came Unlimited for a fixed fee. The most popular plan for Smartphone users on Jio network is the Rs.399 plan, which comes with a validity of 84 days, which translates into an ARPU of about Rs.140 per month. But now a large portion of incremental users joining Jio network are the Jio Phone users, which have generate a lower ARPU of possibly under Rs.100 per month. Reliance Jio's overall ARPU for June 2019 quarter stood at about Rs.122 per month. This is with an Average Data usage of over 10 GB per user per month and Voice usage of over 650 minutes per user per month.

Bharti Airtel, Vodafone & Idea Cellular enjoyed healthy ARPUs in the region of Rs.175 to 200 per month back in 2016. The Average Voice usage used to be about 450 minutes per user per month and Average Data usage per Data customer was under 1 GB per user per month. After launch of Reliance Jio's services & tariff plans, all these incumbent operators have been forced to introduce tariff plans that are almost in line with those of Jio's plans. But only about 30 to 40% of their users consume Wireless Data. Hence they do offer specific plans for their Voice-only users as well. The years 2017 & 2018 were periods of adjustment for these operators as well as their customers. Almost all of them have shifted to these newer Unlimited Plans or Voice-only plans, resulting in massive drops in ARPUs for these incumbent operators. Bharti Airtel's ARPU for June 2019 stood at Rs.129 per month, which is the best amongst all these operators. Vodafone-Idea's ARPU stands at just Rs.108 per month, the lowest amongst the 3 operators.The significant difference in ARPUs of Airtel and Vodafone-Idea clearly suggests that Airtel has better managed to upgrade it's users to the newer tariff plans and a higher proportion of Airtel users are using it as their Primary sim, compared to that of Vodafone-Idea.

The significant drops in ARPU of the incumbent operators has happened alongwith huge increase in Average usage per customer. The average Data usage per 3G/4G Data customer per month has shot up to about 10 or 11 GB per month. Even the average voice usage has jumped to over 650 minutes per user per month. After falling for several quarters since middle of 2016, the ARPUs of Airtel and Vodafone-Idea have finally started improving over the last couple of quarters. This increase is because of increase in number of 4G users, which are consumers of Wireless Broadband services. Both these operators will

now focus on upgrading their 2G/3G users to 4G networks. Currently only 26% of Vodafone-Idea's total users are on it's 4G network, while the proportion for Airtel is at 34%. Hence both operators have huge scope of improvement here. Both of them will be aiming to have 150 million users each on their 4G networks by the middle of 2020. This will help them improve their ARPUs by atleast 10 to 15%.

Tariff Increases: I think the tariff increase will depend on the capacity congestion on Reliance Jio's network. The operator continues to add millions of new users every month, but there is not proportionate increase in it's traffic handling capacity. This is certainly affecting it's quality of service in many regions. I myself was a Jio customer from May 2016 to June 2019. But I faced huge issues in terms of slow Data speeds for many months at my place, before I finally ported out to Idea 4G. I am sure there will be many more people like me who might be porting out of Jio because of poor Data speeds at their place. I don't know what Jio's management has in mind, but I would certainly have considered reducing the Data usage limits on the existing plans and introduce newer plans for those requiring higher usage at slightly higher price points. This should help improve quality of service for Jio and also boost it's profitability.

Any tariff changes done by Jio will be quickly reciprocated by Airtel and Vodafone-Idea. Even a 5 or 10% increase in prices of existing plans will do wonders to improve the financial health of these struggling operators. Now the BIG Question is: When will we see some increase in tariffs? I think that day is not very far. We could see first signs of tariff increases anytime in the next 6 to 8 months. By then Jio will be much closer to it's target of having 400 million users on it's 4G network. Let's wait & watch. But I would certainly expect and like to see the ARPUs of all these 3 operators stabilise in the range of Rs.125 to 150 per month. This will help them make some money and also allow them to offer decent quality of service to their users.

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